The UK Coalition Government announced its first Budget today

The UK Coalition Government announced its first Budget today

There was little comfort expected in the UK for anyone from this Budget, one which the Chancellor himself described, before he unveiled details, as the harshest in 30 years.

Yet the alcohol sector, whilst perhaps not upbeat about George Osborne's pronouncements today was certainly relieved.

There had been rumours that a rise in VAT to 20% would be accompanied by another painful hike in excise duties on the alcohol sector. It would have been a woeful decision for the industry - one perhaps that many in the sector would simply have been unable to absorb.

As it is, excise has been frozen and there was even positive news for the country's cider producers when it became apparent that the Government was scrapping an above inflation rise in cider tax.

So, the industry can breathe a sigh of relief today. But how long will the respite last?

The Chancellor has indicated that there will be a review of possible health-related measures on alcohol – he will report back on that as early as this Autumn. The industry will be keen to press its case hard before then.

“He (the Chancellor) is also right to press on with an early review of the current excise duty system,” said Gavin Hewitt, the CEO of the SWA. “We encourage the Government to look closely at taxing all drinks at the same rate according to alcohol content, coupled with a ban on below tax sales. We believe this route would help the Government address its concern over the pricing of alcohol, would secure greater social responsibility and would offer increased revenue.”

But there will also be huge pressure on the Government from the anti-alcohol lobby and, I suspect, further bad news to come on the state of the public finances. The opportunity to raise short-term cash and score political capital from voters concerned, rightly or wrongly, about binge and under-age drinking could be too great for this government and bad news for the industry. 

Then we have the rise in Value Added Tax (VAT).

The UK's Gin & Vodka Association says the proposed increase in VAT to 20% in 2011 may add a further GBP0.19 tax to a 70cl bottle of spirits in the supermarkets.

There was a telling passage in today's BBC news website, explaining to consumers how the rise in VAT will work.

“Given that VAT is the tax you have to pay when you buy goods or services - it is almost unavoidable," it said. "So, presuming that retailers pass on the rise, it means that many of the things you buy in the UK, will become more expensive.”

The key for the drinks industry here are the eight words “presuming that retailers pass on the rise”.

At this year's London International Wine Fair, delegates at the just-drinks seminar debated how, and if, producers could work with retailers to pass on the effects of recent excise rises to consumers. The general mood was bleak.

The industry's track record on this issue is woeful and it has been producers, by and large, that have suffered whilst the consumer has remained immune to the Government's efforts to tax them for their alcohol purchases. Retailers remain, unsurprisingly, reluctant to increase prices to consumers and happy for suppliers to absorb the damage.

But, this rise in VAT simply must be passed on to the consumer. It is a tax on the drinker, not on the industry. It is also a golden opportunity to begin to force some positive movement on pricing in an environment where consumers are expecting bad news.

Here's hoping that opportunity is realised.